Interactive Brokers says it will now accept bets that bitcoin will tumble

By Mark DeCambre

Published: Dec 13, 2017 1:55 pm ET

Interactive Brokers says decision to offer shorts is based on spread between futures bitcoin and spot prices

Bitcoin shorts ready to burn longs?

A major online broker, Interactive Brokers Group Inc., says it will allow investors to bet against, or short, bitcoin, on its trading platform, shifting an earlier stance to only provide trading access to customers to bitcoin futures making outright long investments in the bubblicious cryptocurrency.

“The introduction of short sales was necessitated by the large premium of the January futures contract over the price at which Bitcoin trades on the physical venues,” said Chairman of Interactive Brokers LLC Thomas Peterffy.

Bitcoin futures trading made their debut at the Cboe Global Markets Inc.
CBOE
on Dec. 10, and although the cash-settled, January contract
XBTF8
has been mostly trending lower, it maintains a sizable spread between levels at the Cboe and other indexes. Such spreads are unusual in mature assets, with futures contracts tending to trade mostly in line with their underlying asset.

As of Wednesday afternoon, the spread between January bitcoin futures, at about $17,260, was about $1,400, with the quote for bitcoin
BTCUSD
on data-and-research site Coindesk.com at $16,448, with prices broadly moving sharply lower. Bitcoin has gained $1,600 in 2017 alone. That compares with a nearly 25% year-to-date gain for the Dow Jones Industrial Average
DJIA
and a roughly 20% rise so far in 2017 for the S&P 500 index
SPX

Interactive Brokers, however, will require a hefty fee for such short bets, with margin of $40,000 per contract for a short sale. Margin on long positions at the online platform is $9,000. Margin refers to the amount of money a trader must initially pony up as collateral when taking a futures position.

Interactive Broker’s steep margin requirements for short bets are likely because bitcoin has been among the most volatile assets, notably swinging as much as 20% or more within minutes and hours. Short bets, where an investor borrows an asset to return it at a lower price and collect a profit, can deliver infinite amounts of pain to an investor taking the wrong side of such a trade.

Hungarian-born Peterffy has been critical of the Cboe’s move to trade bitcoin futures, saying the wild trading swings of bitcoin could imperil both the trading platform and the investor who is shorting. The ability to place a short bet without having to first borrow the underlying security is one of the appeals of a futures market.